Corporate Fraud and Internal Control + Software Demo: A Framework for Prevention

CHAPTER NINE

Investigating Fraud

As long as the world shall last there will be wrongs, and if no man objected and no man rebelled, those wrongs would last forever.

—Clarence Darrow, Lawyer and Civil Libertarian (1857–1938)

After studying this chapter, the reader should be able to:

• Identify the red flags and indicators of fraud appropriate to triggering a fraud investigation.
• Identify the forensic techniques available and the resources and training required to implement an appropriate fraud investigation.
• Identify the requirements for establishing an internal investigation function and determine the appropriateness.
• Identify and evaluate the appropriate measures for tracing and recovering lost assets.

Incidents of private and public fraud are being reported daily in the media, and more and more prosecutions for this offense are being conducted in the various courts. This chapter examines the phenomenon in order to obtain a full appreciation of what exactly fraud investigation is and how such an investigation is triggered.

Fraud investigation is typically a reactive function triggered by internal or external recognition of a red flag indicating the potential presence of fraudulent activity. The investigator needs the ability to differentiate between red flags indicating operational ineffectiveness or inefficiencies and deliberate fraud. The more the awareness of management, employees, and other stakeholders of potential red flags is raised, the more likely it is that an investigation ...